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As an investment advisor, my performance is benchmarked to infinity and beyond. My beloved clients can log on and view all their holdings (including even those I don't manage) sorted into seven categories and fifteen sub-categories. Each of these categories and sub-categories is assigned a benchmark that lets clients track me like a bloodhound.

My clients can see these results every morning over their Cheerios if they are so inclined -- for any particular security, or category or sub-category, or for their accounts as a whole. In case they missed it, I also write them quarterly letters summarizing all of the above.

This whole process -- which I set up -- is a little bit nutty. I'm not sure what the point of all this benchmarking is, or what clients are supposed to do with all this data. It metacommunicates that paying attention to performance vs. benchmarks is important. But is it?

No, it's not.

For example, my US Small/Value Equity category is matched against the Total US Stock Market. The benchmarks are usually represented by funds clients could buy on their own without conjuring up a factor-based strategy like I do. This decision is arbitrary. I could also benchmark small/value stocks against a small/value stock index. But what if my stocks are smaller or more valuey than the benchmark index? Is it still a fair benchmark? If I pursue this logic to its extreme, I end up benchmarking everything to itself.

Consider: Tesla has been on fire lately. Should it be benchmarked to a broad stock index? Or, to a group of automotive stocks? Or, should it be benchmarked to technology stocks or momentum stocks? Perhaps it should be benchmarked against electric car companies like BYD. In the end, there's no company exactly like Tesla. But the more we benchmark it to itself, the more the benchmark disappears like a charmed quark and we are left with nothing.

At a macro level, financial theory suggests that we all should be benchmarked against the global market index: the portfolio of all assets in the world weighted by their market prices. Assuming that we could calculate this (it's a big spreadsheet), there are still problems, because we can only use the assets that are readily investable. What about all the residential real estate on here on Spaceship Earth? Or the value of the minerals under the soil? Or our human capital? Whether we take out a microscope or a telescope, the whole process seems more rather than less arbitrary the closer/farther we look.

How little we know

Academics are still debating whether Warren Buffett, the greatest genius investor of all time, is really any good, because he could be just a statistical outlier. Maybe all those Chairman's letters are bunk, the delusions of a fellow with a series of good spins at the roulette wheel who came to believe his philosophy was possessed of super-powers.

Here's my point, and you aren't going to like it: If statisticians still can't decide whether Warren Buffett is skillful or just a lucky duck after sixty years, how are we going to be able to tell whether that confident-looking guy managing our money for the last five years is any good?

The answer is, we can't. We will go to our graves not knowing whether he was Einstein or an empty suit. And so, for that matter, will he.

Looking at performance is an exercise in futility, made worse because it misleads us into believing that we are doing some kind of meaningful due diligence. At most we will be able to conclude that he seems to be lucky or unlucky, so far. But that's not what we thought we were deciding, now, is it? If he's only lucky, that is a problem, because luck can run out, especially when we need it the most. Whereas skill, if it is skill, might presume to endure and he could lead us like Mark Trail through some dark night of the stock market's soul.

But then -- what is the investment committee to do? As Cliff Asness points out, these groups often review 3-to-5 year track records to size up the cut of a manager's jib. As Cliff might say, this is not only wrong, it's backwards. If anything, after 3-to-5 years, however dubious a strategy the manager has been following, it is likely to regress to the mean. The mighty will be brought low; the meek will inherit the earth. This is why investment consultants notoriously destroy value to the tune of about 1% a year (or maybe they're just unlucky?).